So the taxpayer who didn't go to college and instead went to work because he lacked either the interest/ability or money to do so at the time, should be left holding the bag on the default of the person who irresponsibly took out too big a loan for a worthless degree? Yeah, great alternative.
No, the debtor should eat the default, and the lender, with insight into aggregate market conditions, should take their default rates into consideration when advising institutions on pricing.
This is the "systemic fairness" argument, also known as the "moral hazard" argument. It's a fair point.
But my original point (I wrote the top-level comment to which you're responding) was this: Taking away ALL risk from the .edus and the lenders took away a really important part of downward tuition-price pressure. Easy student loan money means escalating student fees.
Who should "pay" if a schoolteacher can't pay her Salem State College loans? Good question. The college who charged so much ought to be on the hook, at least partly. The same goes for the lender, taxpayers in the community where she teaches, and she herself.
Who should pay if an investment banker can't pay his Harvard Business School student loans? Is it a different kind of question? That is hard to know in general.
Without the ability to bring student loans to bankruptcy court, there's no legal way to address these questions of fairness. That is not sustainable for student debtors, colleges, or the society at large.
I didn't mean that to sound as bitter as it probably did, but I'm glad I got the point across.
What's often left out of these amateur discussions we have is that education loans are non-collateralized debt. There's no asset of any value to repossess, and except for a few specialized programs where you owe a few years in the military or troubled school or free health clinic, not even a pledge of the very thing this loan is supposed to return value on, i.e. the person's own labor productivity. (And even in those cases, if the person reneges and suddenly becomes liable for the cost of their education again, they're still probably eligible for the same kind of forbearance and forgiveness programs being pushed for the more general student-loan indebted population.)
That's a (if not the) key reason this kind of debt isn't dischargeable.
If you want to be fair at this point the college's and banks should be eating the default. The information assymetry is massively on their side and the college's have done nothing to try and use their money efficiently while the banks have seemingly given up on doing their job of making sure the investment is worthwhile.
Unfortunately that might make our entire economy collapse as we've let the student debt bubble get so large. We'll likely have to all shoulder some of the pain, regardless of how fair it is
They made the loans under the condition that they are not dischargeable and that the government would pay in case of default. You can't retroactively change the rules.
Why not? You totally can. It's not some fundamental law of nature that regulation can't be changed after some time. The loans were made under the assumption that they are not dischargeable, at that time someone could attempt to estimate what's the probability that the laws would be repealed or modified in some time horizon. That probability is going to be > 0. Is that risk large enough to change the business case for making the loan in the first place?
You could, but, in the U.S., ex post facto law is unconstitutional. Lenders have correctly gauged the odds of this provision of the U.S. constitution changing to be near zero.
This would be an ex post facto change. The government wouldn't be retroactively making the lenders guilty, it'd be a change in regulations. If this change was unconstitutional then you'd have situations like a company with a contract to dump industrial waste into a river going "oh sorry, I made this contract based on the regulations back then, so it's unconstitutional for you to make me stop polluting"
If you had a contract that was contingent on your ability to dump your waste in the river, and then a law was passed forbidding the dumping of waste, you would of course have to stop polluting, but your contract would be null and void as well.
Non-bankruptable student loans aren't "regulations" they are specific contracts between students, lenders, and the US government.
You can't get blood from a stone either and that appears to be the only alternative the lenders are seeking. The many of these loans are bad, they were for more money than the education provided in income. If they don't become dischargeable or just get written off the system is going to collapse
If the student defaults, the lender still gets paid. The government steps in and pays them. The debt is then essentially owed to the government rather than the lender.
I think a lot of people share your point of view. That's your right, but then there should be no surprise when eccentric politicians get into office after enough voters who are continually on the losing end by having not gotten involved in these bubbles are sick and tired of being fed this line.
I agree. There needs to start being punishments for leaders of these institutions who put our society at risk over pure greed. The institutions might need to be saved atm but if everyone on charge gets away scot free then it's just going to degrade people's belief that our system is worth having
